Commentary on the economic , geopolitical and simply fascinating things going on. Served occasionally with a side of snark.

Saturday, March 8, 2014

Ukraine Updates March 8 , 2014 - Moscow and the West continue to trade jabs over the respective actions and legitimacy of said actions coming from Kiev and Crimea , China weighs in with its thoughts on the overall situation in Ukraine , its disagreement and opposition to " the easy use of sanctions in international relations , or using sanctions as a threat " and political means being the only solution , sanction talk from both the West and Russia bandied about -- neither side has much enthusiasm on actually imposing truly punitive measures at this time but expect changes in tone if the Crimea referendum does occur and Crimea votes to join the Russian Federation , IMF discusses its intial consultations with Ukraine ( handcuffs being fitted even as we speak for the Ukrainian people with pensions in the gunsights ) , inquiring minds wonder as to why Kiev is courting neo- fascist groups and Oligarchs in its new government of the people , Military movements / War games / Sanction tough talk - all par of the grand game being played out , but those Gazprom gas bills near 2 billion and are still unpaid .

Earlier today, photos were distributed showing the latest military convoy reinforcements heading into the Crimea, accompanies by a Police car demonstrating Moscow license plate numbers, most likely providing further support to the pro-Russian forces in the peninsula.

Supposedly the trucks are carrying troops to reinforces the members of the new Crimean army, pictured below:

While at the same time along the makeshift border between Crimea and the mainland, the Pro-Russian forces are putting down minefields.

However, the Ukrainians, having already been mobilized for over a week, finally appear set to seize back the offensive:

Perhaps it is time to finally admit that anyone who thought Putin's Tuesday press conference, which the market so jubilantly assumed was a case of "blinking" and de-escalating tensions with the west, was wrong. If there is still any confusion, following yesterday's news that Gazprom officially threatened Ukraine with cutting off its gas supplies, as well as the storming of a Ukraine base by Russian troops - luckily with no shots fired so far - then today's developments should any remaining doubts. Moments ago AP reported that as the latest, third in a row, group of OSCE inspectors tried to enter Ukraine, they were not only barred from doing so, but warnings shots were fired to emphasize the point by pro-Russian forces.

After the officers had stopped, the armed men fired warning bursts of automatic weapons fire into the air to make other unidentified vehicles halt. No injuries were reported.

The multinational group of military officers from the Organization for Security and Cooperation in Europe was attempting to enter the embattled peninsula from the north. The armed men told them they had no authorization to enter Crimea.

The OSCE mission will likely return to the Ukrainian city of Kherson where it had spent the night, the AP reporter said.

Russia and Ukraine are locked in a tense standoff over Crimea.

Bloomberg adds:

OSCE tried to enter Crimea for third day, warning shots were fired as it attempted to do so today, Tatyana Baeva, OSCE spokeswoman, said by phone from Vienna.

Nobody injured in incident, OSCE mission is now back in Kherson, southern Ukraine.

OSCE 29 member states that provided people for Crimea mission may meet today or tomorrow in Vienna to discuss further action: Baeva

Then there was this overnight escalation as reported by Ukraine's TV5 station (of questionably credibility), via Bloomberg:

Ukraine denied entrance to 513 “extremists” from Russia during last 24 hrs, state border guard service says in another separate statement on its website

Remember, all it takes is for one stray bullet to hit a human target, on either side of the conflict, for the market to grasp just how wrong its assessment of de-escalation has been.

Elsewhere, while inspectors were trying to make their way into Ukraine - unsuccessfully - Russia announced it was considering a further freeze of U.S. military inspections under arms control treaties in retaliation to Washington's decision to halt military cooperation with Russia, news reports said Saturday.

Russian news agencies carried a statement by an unidentified Defense Ministry official saying that Moscow sees the U.S. move as a reason to suspend U.S. inspections in Russia in line with the 2010 New START treaty on cutting U.S. and Russian nuclear arsenals and the 2011 Vienna agreement that envisages mutual inspections of Russian and NATO military facilities as part of confidence-building measures.

A Defense Ministry spokesman wouldn't comment on the reports, which are a usual way in Russia to carry unofficial government signals.

The U.S. and the European Union have introduced sanctions over Russia in response to its move to send troops that have taken control of Ukraine's Black Sea peninsula of Crimea.

So if the START treaty is suspended how long until its anti-proliferation clauses are scrapped completely once more, and the Cold War arms race returns once again.

Also, \while escalations such as these threaten to transform the new Cold War into a hot one, the clock is ticking, and in favor of Russia, because the longer Ukraine remains without western aid, the quicker its foreign reserves will run out, and the faster the country will become a vassal state of Gazpromia. Add the ticking countdown to the March 16 Crimean referendum, which the west and Ukraine have both declared illegitimate yet have no power to stop, and suddenly one can see how Putin once again outsmarted everything the west had to throw at it. WSJ explains:

Gazprom's demand raises the prospect that some of the aid Western powers have guaranteed could end up flowing into Moscow's coffers to pay Ukraine's gas bill. Virtually all of the country's natural-gas imports come from Russia. Late last year it was granted a discount that Moscow has threatened to rescind since the fall of Mr. Yanukovych.

"This now becomes an EU/U.S. problem: Who is going to lend Ukraine the money to pay the gas bill? If so, what will be the conditions?" said Jonathan Stern, an analyst at the Oxford Energy Institute.

A spokesman for Gazprom said that the threatened cutoff wouldn't affect supplies to Europe, which gets about a third of its gas from Russia, much of it via pipelines that run through Ukraine.

In 2009, after the Russian energy giant switched off the supply to Ukraine, Ukrainian authorities began using the supply transiting their territory that Gazprom said was destined for customers in Europe. Gazprom then cut off the flow altogether, causing shortages and price increases for end customers.

"The EU, U.S. and IMF have just about three weeks to resolve this," Mr. Stern said.

At which point it's game, set match Putin once more.

Finally, what certainly helped Russia is that, as expected, China took the side of Putin, not of the "free world", in what is now a very distinct and clear axis of power the New Normal dipolar world.

and.....

Saturday, March 8

10:00 GMT:

Moscow expects clear-cut reaction from Ukraine and western countries to threats to Russia, coming from Dmitry Yarosh, the leader of the nationalist “Right sector” group, according to a statement by Russia’s Foreign Ministry.

The radical group’s page at one of the social networks earlier featured a post, urging the leader of the Chechen terrorists, Doku Umarov, to support the “Right sector”. The group argues its page was hacked.

09:24 GMT:

The coup-imposed government in Kiev is highly dependent on far-right groups, Russia’s Foreign Minister Sergey Lavrov said at a press-conference in Moscow.

“The so-called interim government is not self-sufficient, and, to great regret, depends upon radical nationalists, who carried out the military coup,” Lavrov said. “The west is quite well informed of what they the [radicals] represent, but for political reasons, it tries to conceal the facts.”

08:02 GMT:

While the EU leadership says it's ready to support Ukraine's new government with loans, not all EU taxpayers appear to embrace the idea of taking on another struggling economy, which isn't even part of the bloc, as RT’s Paula Slier found out.

07:59 GMT:

Ukraine might soon announce setting up a special commission to investigate the identity of the snipers, who shot at both protesters and police during the late-February Maidan rallies in Kiev.

Earlier, a leaked phone conversation between EU foreign affairs chief ,Catherine Ashton, and the Estonian foreign affairs minister, Urmas Paet, emerged online. There, Paet said that snipers were hired by the opposition."The decision is made to announce in the near future the creation of an official commission, probably parliamentary, likely consisting of members of different parties, including the Party of Regions and international experts, may be from Russia as well,” an official from a Ukrainian law enforcement agency, who concealed his name, told Interfax via phone.The information has not been officially confirmed.

07:59 GMT:

Sevastopol residents are planning a flash-mob for Sunday, which would see people form a giant “live” flag of the Russian Federation. Organizers of the event, who are calling on people to join it via social networks, say the slogan of the flash-mob is “Make the right choice”.

"As the information war rages on we want to gather as many non-indifferent people as we can to raise the “live” flag, which would show the world our attitude, the attitude of the people of Crimea. We are peaceful people and are friends with Russia. Russia is not our enemy, but is our hope and protection,” the organizers' statement says, as cited by Interfax.

06:24 GMT:

RT’s Peter Oliver takes a closer look at the Ukrainian extremist Right Sector group, which has reportedly demanded access to the country’s arsenals. The leader of the ultra nationalist activists Dmitriy Yarosh, has recently announced he is running for President of Ukraine.

06:22 GMT:

First deputy speaker of the Crimean parliament, Grigory Ioffe, has explained why authorities of the region decided to change the referendum question from one about greater autonomy within Ukraine to the possibility of joining Russia. He said that was done because of pressure from Kiev, following the announcement of the referendum.

“Unfortunately the events which took place made the Crimean government change the referendum question,” he said as cited by Interfax. “You know what happened? There were all kinds of court proceedings, mean words, accusations, legal action.”Now the referendum to be held March 16 will be about Crimeans deciding whether the region should remain part of Ukraine or become part of Russia.

03:27 GMT:

China believes the crisis in Ukraine should only be settled by political means and is ready to facilitate the process, according to China’s Foreign Minister Wang Yi.

"The development of the situation in Ukraine has its reasons and causes regret,” Yi said, as cited by Itar-Tass. "The Ukrainian issue reflects the country's complicated history. The more complicated an issue is, the more accurate measures should be used to settle it."

"China continues supporting contacts with the respective parties, and we are ready to play a constructive role in settlement of the Ukrainian crisis by political methods," the minister added.

18:39 GMT:

Russia said on Friday any US sanctions imposed against Moscow over the crisis in Ukraine would boomerang back on the United States and urged Washington not to damage bilateral ties.

In a phone conversation with US Secretary of State John Kerry, Foreign Minister Sergey Lavrov "warned against hasty and reckless steps capable of causing harm to Russian-American relations, particularly ... sanctions, which would inevitably hit the United States like a boomerang", the Foreign Ministry said. (Reuters)

18:24 GMT:

All the events that led to the coup in Kiev need to be thoroughly investigated, as they may reveal “more interesting things,” Russia’s UN Ambassador, Vitaly Churkin, told RT. Churkin was commenting on the leaked phone conversation between Estonian Foreign Affairs Minister Urmas Paet and EU foreign policy chief Catherine Ashton, in which Paet referred to the alleged hiring of Kiev snipers by opposition leaders.

According to Churkin, the investigation could draw a “completely different picture” to what is being presented in US media and by some US and European politicians.

“If the authorities are being established by coup, by shooting at your own people in order to provoke outrage and topple [the] government by force, this is not democracy at all,” Churkin stressed.

Allegations of Ukrainian MPs being beaten up and intimidated by threats and “uninvited visitors” also need to be looked into, Churkin said, adding that he already raised this issue at the UN Security Council meeting.

The Ukrainian crisis can only be resolved through a constitutional process, which means going in line with the February 21 agreement between ousted President Yanukovich and former opposition leaders, and such a process must “involve all regions” of the country, the Russian diplomat stressed.

17:57 GMT:

Crimea is not looking for any “privileges” from Russia if it joins the country, and Crimean authorities are certain the regional economy will prosper after getting rid of Ukrainian corruption, Grigory Ioffe, first deputy chair of Crimea’s parliament, told journalists.

Ioffe stressed that the Crimean referendum will be “very democratic and open” and will be held “in full compliance” with both the Ukrainian constitution and the international treaties that Ukraine had adopted. International observers, including those from the OSCE, as well as media and NGO representatives are“most welcome” to observe the referendum, he said.

16:19 GMT:

Russia’s Foreign Ministry has stated that the OSCE (Organization for Security and Co-operation in Europe) should condemn the violent actions of Maidan supporters and admit the illegitimacy of the coup in Kiev.

Also, the Foreign Ministry is counting on the EU not to make a move that may undermine trust in it as a strategic partner of Russia.

Plus, Russia’s Foreign Ministry spoke against the double standards of several OSCE participant countries and the organization’s executive organs.

15:46 GMT:

An International Monetary Fund mission in Ukraine is "progressing well", Reza Moghadam, the director of the IMF's European Department, said on Friday.

He said the IMF stood ready to support the government's economic program to put Ukraine "on the path of good economic governance and sustainable growth" and that consultations would continue. (Reuters)

15:08 GMT:

General Secretary of the Council of Europe, Thorbjørn Jagland, and Austria’s Foreign Minister Sebastian Kurz are gearing up to propose that Ukraine conduct expert analysis into its human rights record. The talks to decide this issue will be on Monday.

15:08 GMT:

Over 65,000 people have gathered for a Moscow rally and concert in support of Crimea, according to the Russian Interior Ministry.

Armed Fighters Leave 'Without Incident'

A puzzling array of conflicting stories have emerged about an incident today at a Ukrainian missile base in the Crimean port city of Sevastopol, which was surrounded or by some reports raided by a group of men in military uniforms with no identifying marks on them.

Such men have been an increasingly common site in the Crimea, mostly ethnic Russians backing the secessionist movement, but Ukrainian officials simply dubbed them Russian soldiers. They also issued a statement claiming to have fought the soldiers off, though no shots were fired.

The most recent reports suggest no fighting at all occurred at the base, and that the men arrived in two lorries, and left after some “negotiations” on some unspecified issues.

It’s impossible to know exactly who these men were, and if they were affiliated with the Crimean government or not. It could be speculated that they were trying to get the soldiers to defect, as many other Ukrainian troops have done in Crimea. Nevertheless, the narrative doesn’t seem to hinge on the particulars, and simply seeks to blame Russia for an “attack” that doesn’t appear to have even happened.

Right Sector Chief to Run for President

While the initial installation of an interim government in the Ukraine centered around long-standing allies of Yulia Tymoshenko, the government’s effort to curry favor with protesters and secure influence in eastern areas with secessionist ambitions has them courting two factions for their government, the neo-fascist Right Sector and the powerful oligarchs.

The Right Sector was hugely influential within the protest movement, and has gone from a virtual non-player politically, dismissed as neo-Nazi linked thugs, to a major player in the new Ukraine which styles itself a “youth patriot organization.”

Their leader, Dmytro Yarosh, made headlines over the weekend for urging Chechen terrorist leaders to launch strikes on Russia, presenting them as ideal allies for the new Ukraine. Now, he’s running for president, and while it’s not clear if he’s the front-runner at this point, he is considered a credible candidate with a legitimate shot at winning.

The Right Sector won a lot of credibility in the west for its violent role in the protests, but in the far east, where ethnic Russians dominate, it is billionaire oligarchs that are getting appointed in hopes of tamping down the secessionist fervor that’s got Crimea just over a week from a referendum for independence.

Ship Only Allowed to Stay in the Black Sea for 21 Days

The USS Truxtun has crossed the Bosphorus Strait today into the Black Sea, a deployment which officials presented as a reaction to the growing tensions around Crimean secession.

The Truxton is a relatively new Arleigh Burke-class destroyer, launched in 2007. Its primary claims to fame were a 2006 fire during its construction, which caused millions of dollars in damage, and its role in the 2013 Tom Hanks movie Captain Phillips.

The decision to deploy a single ship is puzzling, since Russia has an entire fleet there, and much of Ukraine’s own navy has defected to the Crimea. The Truxton clearly will not alter the balance of power in the sea.

Moreover, the 1936 Montreux Convention strictly limits how long the ship is allowed to stay in the Black Sea. The Truxton is expected to play a role in naval exercises with Bulgaria and Romania during its visit.

Much of Western Bailout Likely to Wind Up in Russian Hands Anyhow

As Western officials continue to ratchet up threats for sanctions on Russia, Foreign Minister Sergey Lavrov warned that the move could “boomerang” and hit the sanctioners, particularly in the European Union, much harder than Russia itself.

Lavrov warned the US push for sanctions was “poorly thought out,” a comment that reflects EU concerns about the plan as well, since many EU nations are highly dependent on Russian natural gas.

The natural gas concern has fueled calls for the US to open up its exporting of gas, though the White House downplayed that prospect, and says that they are several years away from allowing significant exports of natural gas.

Ironically, Western officials that have been pledging billions of dollars to bail out the Ukraine economy in the wake of regime change are going to be finding a lot of that money going to Russia to pay bills owed to major Russian companies. Gazprom alone is owed nearly $2 billion for natural gas shipments to the Ukraine.

Proximity and historical ties make Russia by far the most important business partner for the Ukraine, though the recent protest movement has caused many Russian companies to dramatically reduce the estimated value of their business there.

Amid a Russian spokesperson "hoping" tensions do not escalate into a new cold war with the US, China has come out (perhaps unsurprisingly) on Russia's side strongly condemning any sanctions:

"China has consistently opposed the easy use of sanctions in international relations, or using sanctions as a threat.”

The comments from China's Foreign Ministry reflect the country's close ties with Russia and confirm what Russia's ambassador to Canada noted, we "can always turn to China if the West follows through on threats of tougher sanctions," adding that "Western countries would largely be hurting themselves if they impose tougher sanctions."

Some cryptic words this morning:

WESTERN STATEMENTS ON UKRAINE MAKE US THINK OF TASKS, MEANS AND SACRIFICE THEY ARE WILLING TO MAKE - RUSSIAN FOREIGN MINISTRY

*PESKOV HOPING FOR COMMON GROUND WITH WEST ON UKRAINE: RIA

*PUTIN SPOKESMAN DOESN'T SEE NEW COLD WAR, RIA SAYS

Furthermore, as The Globe and Mail reports, it is clear the Russians have a plan...

Russia’s ambassador to Canada says he was surprised no one bothered to speak with him about the crisis in Ukraine before he received a diplomatic dressing-down last Saturday, and added his country can always turn to China if the West follows through on threats of tougher sanctions.

In a wide-ranging interview with The Globe and Mail, Georgiy Mamedov insisted Russia wants to see the crisis in Ukraine resolved peacefully.

And he said Western countries would largely be hurting themselves if they impose tougher sanctions or make good on warnings that they could boot Russia out of the G8.

The self-proclaimed government in Kiev is reportedly planning to cut pensions by 50 percent as part of unprecedented austerity measures to save Ukraine from default. With an “empty treasury”, reduction of payments might take place in March.

According to the draft document obtained by Kommersant-Ukraine, social payments will be the first to be reduced.

“The Finance Ministry has prepared a plan for optimizing budget expenditures, which implies budget sequestration is to be in force before the end of March. For this purpose, in particular, it has been proposed to reduce capital costs, eliminate tax schemes and preferences and to cut social benefits, for example, 50 percent of pensions to working pensioners,” Kommersant-Ukraine reported.

Ukraine’s Ministry of Social Policy reported on December 1, 2013, that an average pension in Ukraine is $160.
Right after the formation, the self-proclaimed government in Kiev announced that the “treasury is empty”.

Ukraine’s new prime minister, Arseny Yatsenyuk, promised the government would do its best to avoid a default, adding that he expects an EU/IMF economic stabilization package soon. The plan has been formulated in record time, with the government’s strategy ratified in the Ukrainian parliament on February 27, and the document being sent for evaluation to the Ministry of Economic Development and Trade on March 3.

The European Commission offered Ukraine an 11 billion euro loan if Kiev agrees a deal with the IMF, European Commission President Jose Barroso announced on Wednesday. As a rule, help from financial organizations such as the IMF or the World Bank normally includes drastic austerity measures.

Accepting IMF money will mean many sacrifices for Ukraine’s economy, which are likely to include increased gas bills, frozen government salaries, and all around budget cuts.

The government in Kiev has already announced sequestration plans from $6.8 to $8.4 billion in 2014.